When is a temporary layoff – not a temporary layoff

Employers will often seek to respond to downturns in their business by temporarily reducing head count, with the hope of having those employees return to work when the business improves. This is often referred to as a temporary lay off. Many employers inquire as to their right to temporarily lay off employees, generally in response to financial constraints of the business.

In a non-unionized workplace, absent specific terms in an employment contract or employment policy, the right of an employer to temporarily lay off employees is governed by the provisions of the Employment Standards Act. That Act provides that a temporary lay off for a period longer than that defined as a temporary lay off in the Act will constitute a termination. This will give rise to the various obligations under the Act, and at common law, for compensation to terminated employees. The Employment Standards Act defines a temporary lay off as one that does not extend for more than 13 weeks in any period of 20 weeks, or one that is less than 35 weeks in a year.

In a very recent decision of the Ontario Superior Court, the plaintiff had been working for the employer for six years when the employer imposed a series of rotating lay offs due to financial problems. The employer’s program involved rotating lay offs where the employees were always recalled to work within 35 days of the commencement of the temporary lay off in order to come within the definition of a temporary lay off under the Employment Standards Act. The plaintiff was subject to this temporary lay off program, and took the position that he had been constructively dismissed. He sued the employer for his losses. The evidence at trial established that the employer did not continue any of the plaintiff’s regular payments or offer the plaintiff continued coverage under the medical or dental benefits plan at the workplace during the period of temporary lay off.

The first issue dealt with at trial was whether or not the plaintiff had, in fact, been constructively dismissed. The court referred to a Court of Appeal decision released in 2011. In that case, the Court of Appeal concluded that the relevant section of the Employment Standards Act operated to deem a temporary lay off as a termination of employment. The Court of Appeal held that the relevant section of the Employment Standards Act limiting the duration of a temporary lay-off was designed to prevent employers from avoiding their liabilities on termination by calling the termination an indefinite lay off. The court had also found that there was no right at common law to temporarily lay off an employee, and that such a lay off, absent an agreement to the contrary, would be considered a constructive dismissal.

Having reviewing that decision, the judge in this case found that the Employment Standards Act operated to preclude a claim for constructive dismissal in circumstances where the temporary lay off has been handled in accordance with the terms of the Employment Standards Act. In this case, the judge decided that, the employer had not continued the various benefits to which the plaintiff was entitled while she was employed. In particular, the employer failed to offer her continued entitlement to her medical and dental benefits during the period of her temporary lay off. The temporary lay off was therefore not in compliance with the Act. The court therefore found that the plaintiff had, in fact, been constructively dismissed and it awarded her 33 weeks’ salary in lieu of notice.

How should the employer have handled this attempt at reducing staff levels?

First of all, the employee’s benefits should have been maintained during the temporary lay off. The employee should have been advised of a tentative date of recall, but told that the date was subject to change. When the projected period of temporary lay off is expected to exceed 13 weeks but be less than 35 weeks in a 52 week period, payments to retirement plans must be maintained as well.

With the continuing uncertainty of the economic recovery, employers will, in all likelihood, be faced with issues of appropriate staffing levels in the future. While temporary lay offs are an option to address these problems, such lay offs must be handled appropriately, and with due regard to both the provisions of the Employment Standards Act, and the applicable common law. Anyone contemplating such a lay off is invited to contact either Earl Altman or Jeff Kriwetz of our office for detailed advice.

Human Resources Advisor

To learn more on the ins and outs of the temporary layoff rules in Ontario, try The Human Resources Advisor – Ontario Edition, your A to Z manual of HR and payroll compliance in the province of Ontario.

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Earl Altman was a partner at Garfinkle, Biderman and now heads his own consulting firm. Earl has practiced commercial and employment litigation. Earl’s practice focuses on employment disputes, including acting for employees and employers in wrongful dismissal claims, and in breach of contract and breach of fiduciary duty claims. Read more